Public 'ripped off by cheque delays'

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The Independent Online
LABOUR yesterday claimed banks were 'ripping off' their customers by delaying the payment of cheques and standing orders for several days while they invest the money in the international financial markets.

Nigel Griffiths, Labour's consumer affairs spokesman, said banks were making about pounds 340m a year by manipulating the clearing system to their advantage. In a series of Commons questions, he called on Kenneth Clarke, the Chancellor of the Exchequer, to end their 'deceitful tactics'.

Mr Griffiths' attack, which was backed by consumer organisations and independent consultants, centred on what he called the 'deliberately built-in delays' between a person paying a cheque or a standing order and another person receiving its financial benefit.

The controversy has already provoked a rift among the clearing banks, with Barclays taking space in newspapers to advertise its more 'honourable' approach.

Unlike its three main rivals - Lloyds, Midland and NatWest - Barclays starts paying customers interest on cheques on the third day after they have been paid in, although the money cannot be withdrawn until the fifth day.

The others do not pay interest until the fourth day. However, it can be withdrawn on the same day.

Since the money is 'available' to the banks from the third day it can be put out to the markets to earn interest, bringing in the banks an estimated pounds 300m a year. The benefit to the banks of similar delays in standing orders is put at pounds 38m.

The banks claim the profits help pay for the pounds 4.5bn cost of the clearing-bank system and also as an insurance against cheques that bounce. Lloyds said yesterday that for many small businesses earlier access to money - on the fourth rather than the fifth day - was more important than immediate interest.

Jean Eaglesham, head of money policy at the Consumers' Association, said the banking sytem was so complex and 'opaque' that many bank staff did not understand it.